Islam v Australian Real Estate Relations Pty Ltd

Background

1. The background to the present applications is set out in Ratul v Islam; In the matter of Australian Real Estate Relations Pty Ltd [2023] NSWSC 78 (at [1]-[31], which will be referred to as Black J's Judgment). In summary, ARER was registered on 4 June 2017 and carried on business until 30 November 2022 as a real estate agency trading as a Raine and Horne franchisee. As noted above, at all material times, the applicant and Mr Ratul were the sole shareholders and directors of ARER and the co-signatories of ARER's two trust accounts and two trading accounts. Mr Ratul held the principal real estate licence under which ARER traded (and under the directions issued by the Secretary of the Department of Fair Trading pursuant to s 32(4) of the Property and Stock Agent Act 2002 (NSW) each trust account was required to have only one licensee in charge (Mr Ratul), who was able to authorise the withdrawal of trust money from that account).
2. A dispute arose in June 2022 between Mr Ratul and the applicant as to the operation of ARER's business, including as to the remuneration or commission payable to Ms Diba and other items of expenditure.
3. In the period from mid-September 2022 to around 9 December 2022, Mr Ratul commenced proceedings in the District Court and made a number of interlocutory applications in the Equity Division of the Supreme Court (2022/277860) concerning the operation of ARER's bank accounts (see [5]-[9] of Black J's Judgment), including as to a series of transactions carried out on the trust account by the applicant on 9 December 2022.
4. On 13 January 2023, Mr Ratul filed a statement of claim in the Equity Division proceedings in which he sought the winding up of ARER.
5. The applicant commenced separate proceedings in the Corporations List (2022/325554), in which he made a series of claims against the respondents (see [28]-[44] of Black J's Judgment).
6. Both proceedings were heard together by Black J on 8 and 10 February 2023, with evidence in one being evidence in the other. On 10 February 2023, Black J's Judgment was delivered, his Honour making orders for the winding up of ARER, appointing Mr Levi as ARER's liquidator, and dismissing the applicant's separate proceedings.

Black J's Judgment

1. As to the winding up application, Black J accepted (see [21] of Black J's Judgment) that the relationship between the two directors had irretrievably broken down, referring to the affidavit evidence summarised at [10]-[20] of his reasons. In particular, his Honour noted (at [19]) that the applicant had conceded in cross-examination that he had transferred funds from ARER's client trust account to its business account and then to his personal account (to discharge part of the amounts that he claimed against ARER or Mr Ratul). His Honour also noted that the applicant intended to take an additional amount of about $230,000 from those accounts to meet his remaining claims. Black J said that the applicant's intention to do so plainly had no regard to the nature of the client trust accounts or the risk to clients if funds held in them for the benefit of clients were dissipated to meet one shareholder's claims against the other shareholder or against ARER.
2. In support of his application for a winding up order, Mr Ratul submitted that: ARER's commercial operations were being frustrated by the breakdown in the relationship between the shareholders; the misconduct surrounding the operation of the trust account gave rise to a lack of confidence in ARER's conduct and management; and the applicant did not seem to have any awareness of his responsibilities as regards the operation of the trust account.
3. At [26], having set out the applicable principles on an application for winding up on the just and equitable ground, Black J concluded that: I am satisfied that ARER commenced as a quasi-partnership or a business requiring mutual cooperation and a level of trust and the trust and confidence required in such a relationship has irretrievably broken down so that an order should be made for it to be wound up under s 461(1)(k) of the Act. I accept that Mr Ratul's conduct, and the level of payments to Ms Diba when there was no return to shareholders, has contributed to that breakdown, but Mr Islam's conduct in July 2022 and his unauthorised withdrawals from the trust accounts have also done so, and the conduct of both shareholders reinforces rather than diminishes the need for a winding up order. I am also comfortably satisfied that Mr Islam's dealings with ARER'S trust accounts, which placed client funds at risk, give rise to a lack of confidence in the conduct and management of a company's affairs that warrants a winding up order.
4. Accordingly, Black J made the winding up orders now the subject of the proposed appeal by the applicant.
5. As to the claims made by the applicant in the separate proceedings against the respondents, the primary judge considered and rejected each of the following five primary claims and dismissed those proceedings, with costs. First, the applicant's claim that Mr Ratul should be ordered to sell his shares in ARER at an unspecified price (as adjusted for damages and losses) failed because the evidence did not allow a determination of the value of ARER's shares, either before or after any adjustments were made. Thus, the primary judge found at [39] that the only realistic alternative (even if Mr Ratul had established oppression) was to wind up ARER on the just and equitable ground.
6. Secondly, the applicant's claim that there was an agreement that he be paid $10,000 a month for a specified period by way of a director's allowance from ARER failed because the primary judge concluded that the evidence did not establish the existence of the alleged agreement.
7. Thirdly, the primary judge rejected the applicant's claim that the respondents should pay a penalty of $200,000 for false or misleading conduct on several bases, including that the Court had no power to impose such a penalty and, in any event, there was no apparent basis for quantifying a penalty in the amount of $200,000 (see at [42]).
8. Fourthly, as to the applicant's claim that ARER should pay him $645 for car-related expenses, the primary judge concluded at [43] that, because ARER was to be wound up, it would be open to the applicant to lodge a proof of debt for this claim in the liquidation in the usual way.
9. Finally, the primary judge refused to make a suppression order as sought by the applicant because no basis had been established for such an order to be made, which order would be inconsistent with the public interest in open justice (see at [44]).

Summons for leave to appeal

1. On 1 March 2023, the applicant filed a summons in this Court seeking leave to appeal in respect of the orders made in both proceedings.
2. An appeal from a winding up order requires leave (see s 101(2)(n) of the Supreme Court Act). Leave to appeal from the orders made in the applicant's separate proceedings (2022/325554) is not required as the amount in issue exceeds the monetary threshold and the decision is a final decision. The present proceeding does not involve a concurrent hearing of that appeal. Accordingly, an order will be made for that proposed appeal to be listed before the Registrar for the making of further directions.
3. In the applicant's draft notice of appeal, five grounds of appeal are identified (reproduced without alteration below): 1. The Court err by making findings and the drawing of inferences in the absence of evidence supporting winding up the company 2. There was no evidence to support a factual finding 3. The court erred in law in granting for an Order to commence winding up proceeding in respect to Australian Real Estate Relations Pty Ltd (A.C.N. 619 522 182) 4. The Court abused its discretion in awarding cost against Mr. Islam 5. The court erred in law when it dismissed Plaintiff's claims in relation to proceedings 2022/325554, and the order to pay cost of the proceedings
4. As to the first and second of those grounds, the draft notice of appeal does not identify the factual findings or inferences that are sought to be impugned or in respect of which it is said that there was no evidence. As to the third ground, it is presumably a complaint as to the making of the winding up order itself. As to the fourth, sixth and seventh grounds, no error of the kind in House v The King (1936) 55 CLR 499; [1936] HCA 40 is identified. As to the fifth, this does not arise on the present application for leave to appeal as no such leave is necessary.

Stay application

1. On 20 March 2023, Gleeson JA heard an application by the applicant to stay the winding up order. On 23 March 2023, his Honour made orders dismissing that application with costs (Islam v Australian Real Estate Relation Pty Ltd [2023] NSWCA 47, which will be referred to as the Stay Judgment).

Notice of motion filed on 28 March 2023

1. The notice of motion filed by the applicant on 28 March 2023, which is also before this Court, seeks to restrain the commencement of winding up proceedings pending the determination of this appeal, including relief "in the nature of a freezing (Mareva) order or a search (Anton Pillar) order"; and to restrain the liquidator, Mr Levi, from "taking any further step further in winding up" of ARER pending the determination of the summons for leave to appeal. As the respondents note, the relief sought is tantamount to a second application for a stay of the winding up orders.

Determination of summons seeking leave to appeal

1. For leave to appeal to be granted it is necessary for the applicant to identify some error of principle or misapprehension of fact or law, going beyond something that is merely arguable, which leads to an injustice such as to warrant the grant of leave.
2. In essence, the applicant on the present application raises the same contentions put by him in the hearing before Black J. In particular, the applicant there contended that the respondents were seeking the winding up of ARER in order to avoid liability to ARER (or Mr Ratul) for certain transactions said to be uncommercial (including the applicant's complaint as to the payment of commission to Ms Diba in circumstances where there had not been any return to shareholders). The primary judge did not accept that the evidence established that this was Mr Ratul's purpose in seeking a winding up (see at [30]). In any event, his Honour noted that there was no real risk that such a strategy would succeed where there was every reason to think that a liquidator would investigate and pursue claims for any material improper transactions, where recoveries would fund his or her remuneration and be available to meet claims of ARER's creditors and contributories, including Mr Ratul and the applicant. The primary judge also noted that it was open to the applicant to fund a liquidator's investigations into the matters of which he complained. Moreover, as the respondents point out, an allegation of uncommercial transactions would be a claim by the company (unless the applicant obtained leave to commence derivative proceedings) and thus a matter best dealt with by the liquidator of ARER.
3. Insofar as the applicant suggests that ARER is solvent, the primary judge noted that this is not a bar to a winding up on the just and equitable ground (see at [23], his Honour referring to Accurate Financial Consultants Pty Ltd v Koko Black Pty Ltd [2008] VSCA 86; (2008) 66 ACSR 325 at [119] per Dodds-Streeton JA, with whom Ashley JA and Forrest AJA agreed; Re Pure Nature Sydney Pty Ltd [2018] NSWSC 914 at [76] per Black J; and Asia Pacific Joint Mining v Allways Resources Holdings Pty Ltd [2018] 3 Qd R 520; [2018] QCA 048 at [52] per McMurdo JA, as her Honour then was, with whom Gotterson JA and Jackson J agreed).
4. The respondents submit that this was a case where there was a compelling basis to wind up ARER, in circumstances where the breakdown was complete; and the applicant had procured for himself trust account funds (which he had not returned to ARER by the time of trial). Those submissions (at the least as to the existence of a deadlock between the joint directors and shareholders) should be accepted. As to the complaint that trust account funds were diverted to the applicant's personal account, in oral submissions the applicant emphasises that the trust account funds were first transferred to ARER's trading account before being transferred to the applicant's personal bank account.
5. In his oral address in support of his application for leave, the applicant contended that there were eight errors in Black J's Judgment. In response to the Court's invitation for him to identify those errors, the applicant claimed that the primary judge had erred in findings made by him at [38], [40], and [42]. The difficulty with these contentions, as the Court pointed out to the applicant, is that all those paragraphs relate to the part of Black J's Judgment which addressed the separate proceedings (i.e., 2022/325554) and not the winding up proceeding which is the subject of the application for leave to appeal.
6. The applicant then identified [4], [5], [6], [8] and [9] of Black J's Judgment as containing alleged errors. For the following reasons, none of those alleged errors warrants the grant of leave to appeal.
7. As to [4], the primary judge found that the applicant had attended ARER's business premises on 20 and 22 July 2022 (which does not appear to be disputed). The primary judge also noted (at [15]) that the applicant did not address the events of July 2022 in the affidavit summarised in that paragraph. At [26], in support of his conclusion that the business relationship had irretrievably broken down so as to warrant the making of a winding up order, the primary judge referred to several matters relating to the conduct of both Mr Ratul and the applicant, including the applicant's conduct in July 2022 and his unauthorised withdrawals from the trust accounts. His Honour observed that "the conduct of both shareholders reinforces rather than diminishes the need for a winding up order". No arguable error is demonstrated in respect of those findings, nor did the applicant deny that he attended ARER's office in July 2022.
8. As to the alleged error at [5] (which includes a finding that a stop order was placed by the bank on ARER's trust and trading accounts in mid-September 2022, after the applicant had approached the bank), the applicant denied that he had made any such approach. It is difficult to see the relevance of this alleged error in circumstances where the applicant does not dispute the primary judge's finding in that same paragraph that, on 16 September 2022, the applicant was ordered by the Court to have that stop order removed and that he had complied with that order.
9. As to [6], the applicant acknowledged that a further stop order had been placed on ARER's trust and trading accounts on 6 October 2022 and that the Court had made further orders on 12 October 2022 which inter alia restrained the applicant from placing further "stop instructions" on ARER's bank accounts. Significantly, the primary judge then noted (at [6]) that there was a dispute, which did not need to be resolved, as to whether the bank was acting under any instruction from the applicant in placing the 6 October 2022 order. Accordingly, there is no arguable material error.
10. As to [8], the primary judge found that Mr Ratul had offered to purchase the applicant's shares in the company for $400,000 to which the applicant did not respond. The applicant argued that the primary judge then erred in noting that no evidence had been led to allow any assessment of whether Mr Ratul's offer was made at fair value; and complains that his Honour then added that, because of the parties' conduct, it was likely that the shares had only "little value". No arguable error has been demonstrated in that reasoning so as to warrant a grant of leave to appeal. The reasoning is compelling.
11. As to [9], the applicant contended that the primary judge erred in finding that he had made three "unauthorised" withdrawals from ARER's trust accounts, which were then transferred to one of ARER's trading accounts and then transferred to the applicant's personal bank account. Again, no sufficiently arguable error has been demonstrated in respect of that finding, particularly when reference is also made to the primary judge's finding( at [18]) to the effect that the applicant's evidence did not address the fact that the applicant had no authority to make the withdrawals (which he contended were for client referrals, builder referrals and lead generation).
12. For all these reasons, the applicant has not established that any findings made or inferences drawn by the primary judge on which the winding up order was based were not supported by the evidence or otherwise in error. Nor has he established that there was any incorrect exercise of the discretion to wind up the company on the just and equitable ground.
13. As to the complaint about costs, the primary judge considered that there was no reason for costs not to follow the event and nothing has been raised that suggests that the primary judge erred in the exercise of his discretion in this regard. The respondents note that, during the hearing, the primary judge gave the applicant opportunities to reconsider his opposition to the winding up order and pointed out to him the costs consequence that may follow if ARER was wound up despite his opposition.
14. Leave to appeal should be refused; and there is no reason for costs of the proceedings in this Court not to follow the event. It should be noted that the dismissal of the summons seeking leave to appeal does not affect any appeal rights in relation to the decision and orders made dismissing the applicant's separate proceedings but there is no appeal proceeding on foot at this stage in that regard (simply a draft notice of appeal which includes a complaint as to the dismissal of the separate proceedings and the making of the costs order in those proceedings).

Review of Stay

1. In light of the above conclusion there is no utility in the applicant's notice of motion filed on 28 March 2023 (seeking, inter alia, a stay pending the determination of the summons for leave to appeal). Nevertheless, for completeness, it should be noted that an application pursuant to s 46(4) of the Supreme Court Act, which permits this Court to discharge or vary a judgment or orders given by a Judge of Appeal, is not an appeal and does not confer an unrestricted right to a new hearing of the matters in contest. For the purposes of this motion, the Chief Justice has made a direction that the application be heard and determined by two judges of appeal.
2. On such an application, the applicant must establish a material error of law or fact, a disregard of some material consideration or the taking into account of an irrelevant consideration, or that the decision was plainly unreasonable and therefore wrong (see, for example, McGinn v Cranbrook School [2016] NSWCA 226 at [4] per Gleeson JA, with whom Beazley P, as her Excellency then was, and Simpson JA agreed) and it is recognised that there is a heavy burden on such an application (see Rinehart v Welker (2011) 93 NSWLR 311; [2011] NSWCA 403 at [48] per Bathurst CJ and McColl JA).
3. There is no material error of fact or law identified by the applicant in the reasons of Gleeson JA in the Stay Judgment. Indeed, in his oral address, the applicant candidly stated that Gleeson JA did not err and that his complaint was that Gleeson JA simply did not recognise the errors in Black J's Judgment. We reject that contention. In our respectful view, Gleeson JA fairly and accurately summarised the background to the dispute (see at [2]); identified the relevant principles on such an application (see at [6]); addressed the substance of the complaints made by the applicant in relation to Black J's Judgment (see from [10]ff); and dealt with matters going to the balance of convenience (at [14]-[20]) before reaching the conclusion that no error had been identified in Black J's Judgment to exercise the discretion to wind up ARER. No error can be discerned in Gleeson JA's reasons for dismissing the stay application (and other relief sought in the notice of motion filed on 28 March 2023).
4. Insofar as the material filed by the applicant suggested that an application was sought for leave to bring criminal proceedings in relation to the conduct of which the applicant complains, no such application was before this Court.

Conclusion

1. For the above reasons, leave to appeal should be refused and both the summons for leave and the notice of motion seeking to review the dismissal of the stay application should be dismissed with costs. The proposed appeal from that part of Black J's Judgment concerning the separate proceeding (see at [21] above) will be listed before the Registrar for the making of directions.

Amendments 10 January 2024 - Date 28 May amended to 28 March DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 10 January 2024